The Wall Street AI bubble concerns began with ChatGPT when it was first released. AI represents a potential tulip mania or dot-com bust but the current hype might be excessive. The excitement around generative AI products such as ChatGPT, Gemini and Apple’s quirky summaries creates intense discussions among intelligent professionals. The excessive investment of Wall Street in Silicon Valley’s new wonder has led to a situation that Trump’s tariffs are now extinguishing.
The Nasdaq 100 suffered a 10.5% decline this year which exceeded the S&P 500’s 5% decrease because of AI failures and tariff concerns. The DeepSeek debacle of January combined with the CoreWeave IPO failure in the last week caused further damage since Nvidia lost $1 trillion in backing the company. The AI sector has reached its “Trough of Disillusionment” according to analyst Gil Luria of D.A. Davidson who states that AI development will experience delays. Wall Street remains anxious while Big Tech continues to invest billions into AI development and data center construction despite unclear revenue projections.
The term “AI bubble” gained momentum because of industry warning signs and recession predictions. At a Hong Kong summit Alibaba’s Joe Tsai pointed to a data center bubble while TD Cowen reported Microsoft canceled multiple projects which indicated decreasing demand. Investors feel anxious because consumer spending is unstable and inflation is rising while business moves remain frozen due to tariffs.
The strong economy led investors to fully commit to AI but Luria believes this strategy now appears unstable because of the economic slowdown. The market situation has turned soft which makes the previous excessive investment appear risky. The majority of people remain uncertain about Trump’s “Liberation Day” tariff announcement which is scheduled for Wednesday. The current economic situation has a 50/50 chance of entering a recession according to expert predictions. The AI boosters have reduced their enthusiasm about the market while the bubble deflates at a gradual pace. The AI future remains positive according to Luria despite the expected cash flow restrictions because substantial investments have already been made.
